(Editor's note: This article has been updated to correct the title of Austin College Professor David Griffith.)
As White House officials and President Donald J. Trump contemplate ways to fund a wall across the southern border of the country, one solution sparked controversy when it was announced Thursday. The plan, which would see a 20 percent import tax placed on goods imported from Mexico, was announced by officials Thursday.
This plan may instead defer the cost of the wall, reported by The New York Times at an estimated $20 billion, to American consumers, local economists said. Austin College Business Professor and Dean of Social Sciences David Griffith said the plan remains unclear, but the potential impact could result in higher prices on a wide variety of goods.
“I think one of the things we are seeing is a lack of clarity with policy being discussed in news releases and Twitter statements,” he said.
White House officials later commented that this is just one of several plans and tax reforms that could be rolled out to help finance this project, The New York Times reported.
Griffith said if this plan moves forward, consumers would immediately see a price increase on goods, fresh produce and foods. Griffith noted fresh lettuce, avocado and tomato among the foods that are produced in Mexico and imported to the U.S.
“Shoppers at Wal-Mart and other stores would see a much higher grocery costs almost immediately,” he said, noting that this would have the highest impact on lower-income families.
Other goods that will likely be hit include textiles and clothing. Juarez, located near El Paso, is the home of one of the world's largest automotive producers of finished vehicles and parts, Griffith said. As the prices of these goods increase, Griffith said areas closer to the border will likely see the largest impact.
Griffith said Mexico and other countries would likely respond by imposing their own line of tariffs resulting in a trade war between the countries. This would not only impact consumers but also manufacturers.
This would be similar to the Smoot-Hawley Tariff Act of 1930 that saw the country impose 100 percent tariffs on all incoming goods. This was aimed at boosting the sales of domestically-produced goods rather than imports. It ultimately resulted in tariffs being placed against the U.S. in response and saw the country's total production and consumption decrease. This in turn made the ongoing Great Depression worse and likely lengthened it, Griffith said.
“When the prices go up, people will pay more but they will buy less,” he said.
Beyond the immediate impact of a trade war, Griffith said it could also be a violation of the World Trade Organization, of which the U.S. is a member. This would then potentially lead to fines and other penalties against the country.
With attention focused on Mexican trade, Griffith said a proposed 45 percent tariff on goods from China would be even more devastating. This tariff would likely impact middle-class households more as many finished goods and electronics are imported from China, he said.
Instead of relying on extensive tariffs, Griffith said that tax reform could be the answer. As an alternative, Griffith said the Trump administration could instead reduce the corporate tax and institute a value added tax as a way of financing these projects.